Please enable JavaScript.

Coggle requires JavaScript to display documents.

Derivatives Markets (Options Markets (Gains and Losses (Gains and Losses…

- - - - give the buyer the right to buy a security or futures contract
    - - give the buyer the right to sell a security or futures contract
  - - - the Market Price
        
        the higher the call option premium
        
        other things being equal.
        
        Market price is higher than current price
      - the Stock’s Volatility
        
        The greater the volatility of the underlying stock the higher the call option premium
      - the Call Option’s Time to Maturity
        
        The longer the call option’s time to maturity, the higher the call option premium
    - - the Market Price
        
        The higher the existing market price of the underlying stock relative to the exercise price, the lower the put option premium
      - the Stock’s Volatility
        
        The greater the volatility of the underlying stock, the higher the put option premium
      - the Put Option’s Time to Maturity
        
        The longer the time to maturity, the higher the put option premium
- - - - forwards markets
        
        people arrange exchanges forward in time
        
        a forward contract involves two parties agreeing
        
        The buyer have a long position, the seller have a short position
        
        the settlement date
        
        Both parties are bound by the contract
      - futures markets
        
        two parties agreeing
        
        a price buy a given amount of a commodity
      - options markets
        
        allow people to enter into contracts
        
        at a predetermined price
        
        an option buyer has the right to buy or sell,
        but not the obligation to buy or sell.
        
        The option buyer pays the option sellers an option premium.
        
        two types of options
        
        American-style option
        
        can be exercised at any time prior, including the expiration date
        
        European-style option
        
        can be exercised only on the expiration date.
      - swaps markets
        
        two parties agreeing to exchange payment obligations on two underlying financial liabilities that are equal in principal amount
        
        differ in payment patterns
        
        a swap guarantees the exchange of two items of value between counterparties at some time
  - - - a market where individuals trade standardized contracts
    - - Trades are done over the phone
      - the contract will not be honored
- - - - try to reduce price risk
    - - willing to enter a futures transaction
      - Traders are a special class of speculators
      - speculate on very short-term changes in prices
- - - - The notional principal value the interest rates are applied to determine the interest payments involved
      - The fixed interest rate
        
        The formula and type of index used to determine the floating rate
        
        The lifetime of the swap
    - - Interest rate swaps allowed both types of financial (U.S ; Europe) institutions to reduce exposure to interest rate risk.
    - - Interest rate swap are sometimes used by financial institutions and other firms for speculative purposes
  - - - $3.4 unhedged payments if the Pound Appreciates over Time increase
      - =$ 3.4 payments when using swap unchanged
      - < $3.4 unhedged payments if the Pound Appreciates over Time decrease